At least 23 Japanese firms are thinking of investing in Indonesia’s manufacturing industry to meet the demand for manufactured goods in the domestic as well as the Japanese market, a trade representative says.

(seeweed farm in Indonesia)

Japan Foreign Traders Association president Noritada Ito said on Wednesday in Jakarta that the firms, most of which were mid-sized, planned to carry out manufacturing in Indonesia to produce a variety of goods, including automotive parts, furniture and seaweed-food products, aiming to maximize efficiency.

“Japan has excellent technology in manufacturing industry, but high labor costs and the appreciation of the yen against other currencies make it hard for manufacturers to produce goods domestically. Many firms have sought other countries in Asia for investment,” he told reporters after a business-to-business meeting with Indonesian counterparts and trade officials at the Trade Ministry’s office.

However, Ito could not provide figures for the planned investment or the exact time frame when it would be realized.

Japan has been one of the top five foreign investors in Indonesia, Southeast Asia’s largest economy, with the majority of funds injected into the automotive sector.

Japanese automotive giants, including Toyota, Daihatsu and Mitsubishi, are expanding their plants jointly with local partners, spending hundreds of millions of dollars worth of investment, to further tap into the country’s automotive boom fueled by a rapidly rising middle class.

During the first half of this year, investment from Japanese firms totaled around US$1.13 billion in 409 projects, Investment Coordinating Board (BKPM) data shows. Meanwhile, non-oil and gas exports from Indonesia to Japan slowed during the same period, down by 1.93 percent from a year earlier to $10.44 billion, according to the Central Statistics Agency (BPS).

The Trade Ministry’s director for national export development Gatot Prasetyo Adjie predicted that the planned investment from Japanese firms would help boost Indonesian exports not only to Japan but also to other export destinations, particularly where there was a sizeable Japanese community, such as South American countries.

He cited Brazil, home to around 3.5 million people of Japanese descent, as a potential market.

“We’re asking Japan for a tripartite cooperation, building connections with Indonesian exporters, Japanese exporters and the Japanese diaspora, to enter markets like Peru or Brazil. We hope to benefit from diaspora marketing, which has become a growing trend,” Gatot said.

In recent years, the government has accelerated its export diversification to expand into non-traditional markets, particularly Africa, the Middle East and South America.

Last year, exports to five major non-traditional export destinations –Brazil, Colombia, Ecuador, South Africa, and Peru – rose by 43.14 percent to $3.56 billion.

The government was trying to draw more Japanese firms, particularly from areas hit by the tsunami last year, to relocate their production facilities to Indonesia, Gatot said. It was expected that the firms would invest in various manufacturing sectors that utilize the abundant natural resources available nationwide, such as rubber, he added.

“We have not yet seized the maximum opportunity to produce automotive components that are made of rubber, for example,” Gatot said.

Indonesia exports both commodities and manufactured goods to Japan, such as liquefied natural gas, textiles and textile products, footwear, paper and agricultural products and imports various kinds of machinery, equipment, auto parts and electronics from its second biggest trading partner.

President Joko Widodo (Jokowi) has stated that according to US News and World Report survey results, Indonesia was in the second place among the world`s two most attractive countries for investment destination.

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